9.23.2010

Finding Just the Right Amount of Evil

There's an interesting sleight of mouth going on at the Federal Reserve, one that might serve as an(other) [you like that, Wrangler?!] example of the difference between moral speech and sophistry, as I understand the difference.

In short, the major charge of the Federal Reserve Bank has long been to fight inflation--and by "fight inflation," I mean keep it as low as possible. Zero, ideally.

But now there's talk of "managing the pace" of inflation, which suggests a continuum along which the ideal amount of inflation is somewhere in the middle, rather than at zero. But consider what inflation is--what that means, exactly: it means that the Federal Reserve is going to make credit available to big banks in hopes that those banks will lend to people who, right now, they won't lend to. In other words, the Fed is creating another round of what was called "Predatory Lending" just two years ago... and promoting that as the cure for the disease that such practices caused!

Only the Zen logic of Nobel Prize Winner Paul Krugman could bring this strange state of affairs about: Krugman has succeeded in making "us all" fear a "deflationary spiral" (sounds scary!) as much as we fear inflation.

Well, he could be right. Maybe the new view of inflation is like the modern view of germs: the goal need not be to eliminate them altogether by bathing in Clorox Bleach. Okay. But if Krugman is right, then I don't understand what caused the 2008 recession and foreclosure rodeo.

2 comments:

No, I wasn't kidding: it could be true that "a little inflation isn't a bad thing," but then (again) I don't understand what caused the market to collapse in 2008, because everything Krugman said back then -- the stuff that won him his Nobel -- indicated that "predatory lending" was the cause of the bubble and eventual collapse. That was common wisdom in the wake of the 2008 nose-dive.

Or are you saying that that crash was the result of an over-inflated money supply, and that just "dialing it back" a little would be just right?